Alibaba sales forecast tops all estimates as new forays pay off

Alibaba is spending billions of dollars on new businesses in part to counter Tencent’s increasing dominance of online social media and entertainment through WeChat. Photo: Reuters

Hong Kong: Alibaba Group Holding Ltd forecast sales growth that topped every analyst’s estimate, defying expectations that growth must slow by dint of a decelerating economy and its own sheer scale.

China’s largest e-commerce company forecast 45% to 49% revenue growth in the year ending March, sustaining a near-unbroken run of 40% plus annual rises and underscoring how investments into businesses beyond its bread-and-butter of online shopping are paying off. The company’s German shares rose as much as 5.2%.

Alibaba and Tencent Holdings Ltd—which dominate online shopping and social media, respectively—have ventured deeper into new areas from cloud computing services to streaming music and video as the country’s economy slows. The online shopping giant founded by billionaire Jack Ma is capturing more digital advertising spending by incorporating social elements such as video in its shopping sites.

“Its market valuation has fallen behind Tencent’s recently, so the forecast could inject some confidence,” said Ray Zhao, an analyst at Guotai Junan Securities Co. “This will be good news for its share price, which could rise 6% to 7% based on this forecast,” he added without specifying a timeframe.

The forecast compares with the 35% average of estimates and surpassed the most bullish projection of the 43 analysts tracked by Bloomberg.

Alibaba is spending billions of dollars on new businesses in part to counter Tencent’s increasing dominance of online social media and entertainment through WeChat, a messaging and networking powerhouse.

Considered a barometer of Chinese consumer sentiment, Alibaba has also expanded abroad since buying control of Lazada Group SA to establish a foothold in Southeast Asia, potentially setting up a clash with Amazon.com Inc. Its AliExpress site remains for now the main window through which it targets foreign shoppers.

While Alibaba has outperformed expectations, investors remain concerned about a deceleration in China’s economy and similar efforts by Tencent to capture digital ad spending and muscle in on its turf. In response, Alibaba moved into untapped rural markets and explored new sources of income.

Most of those new businesses are years away from contributing to the bottom line. On Thursday, Wu said Alibaba will continue to sacrifice a small slice of profitability to help bankroll its forays.

Cloud computing services in particular now account for about 5% of overall sales. A service akin to Amazon’s AWS that provides computing power over the Internet, it’s become one of the company’s fastest-growing businesses and underpins other pieces of the Alibaba empire such as streaming and e-commerce. The priority remains expansion for now, she added.